27 September, 2008

Jim Lehrer for president!

In last night's debate, I was most impressed by Jim Lehrer's questions, especially the one asking the candidates how they'd change their priorities due to the financial crisis and the likely bailout. (Was it the first one?)

The surest sign that it was a great question is that both candidates ducked it. The closest that either came to answering it was Senator McCain's threat of a government freeze on everything except defense, veterans spending, and entitlements. The problem with his answer is that it doesn't change his priorities at all. Has he proposed any new spending in a McCain administration?

However much McCain's answer left me unimpressed, it was a sight better than Senator Obama's response. He criticized McCain's idea of a spending freeze, but declined to name any change in his own priorities, deciding instead to exploit the crisis for political advantage.

Given that sorry performance, I propose that we draft Jim Lehrer to run for president. Anyone with me?

Of course I'm not serious, and both candidates performed better during other parts of the debate, but Lehrer outshone both.


Boonton said...

I don't think there's really anyway to seriously answer the question. In reality there is no quick budget cut to just find $700B out of the blue. It's a bit like going to your average middle class family and telling them grandma's house is getting foreclosed on and $350,000 is needed right now! Cancelling the Netflix subscription isn't going to really cut it. The only way to do it is to borrow the money.

There is another answer that they could have given. If the gov't borrows at 7% then $700B will cost only $42B a year. A number that you can pay for with cuts. The idea of the bailout is that these assets really are worth $700B or more but the market can't process them because it is too jittery.

What the bailout plan is a bit of a 'buy and flip' scheme. Spend $700B now and buy the assets up during the panic. Then hold the assets until they either pay off on their own or the market calms down and the gov't can sell them back to it.

If that's how it plays out (and I'm by no means saying I'd put my money on it playing out like that)...then it's not so much about spending $700B as much as it is having $700B tied up for a while.

jack perry said...

To correct your analogy, Lehrer's question wasn't whether the middle-class family can afford the $350,000. Rather, it's how the middle-class family will change their usual spending habits so as to mitigate the discomfort consequent to taking out the loan. If the family decides to assume such new debt, something will have to be cut in order to make ends meet. You'll have to spend more money anyway, and given that you'll have to let go of a few dreams, what would go first? The trip to Europe that you had planned for next year, or Daddy's new sports car? That's the question Lehrer was asking. It's a very good question, and the fact that neither candidate could address it adequately is pathetic.

I'm not convinced that the assets are worth $700B. If foreclosure rates on subprime mortgages are as high as the doomsayers have been wailing, then many of these mortgage-backed securities—mixed and matched by Freddie and Fannie with solid loans in inseparable fashion—are in fact doomed. Most are not, but enough are doomed to guarantee a loss.

…Unless we're going to make foreclosures illegal.